The HIV Tat protein is a potent transactivator of HIV transcription, increasing both RNA initiation and elongation. Purified, full-length 86 amino acid Tat protein specifically transactivates the HIV LTR in vitro 25- to 50-fold. HIV transcription was blocked at various functional steps during initiation and elongation complex formation. Similar to the control AdML promoter, HIV basal initiation complex assembly was sensitive to the addition of 0.015% sarkosyl prior to the addition of nucleoside triphosphates. Resistance to 0.05% sarkosyl required the addition of G, C and U which constitute the first 13 bases of the HIV RNA transcript. The addition of Tat to the in vitro transcription reaction relieved the 0.015% sarkosyl block. These Tat-induced complexes were sensitive to 0.05% sarkosyl, suggesting that transcriptional initiation had not occurred. Consistent with this hypothesis, the addition of G, C and U to the Tat-induced transcription complexes allowed the rapid conversion to transcription initiation complexes. Tat also facilitated the formation of initiation complexes in a reconstituted transcription system containing partially purified transcription factors and polymerase II. Following the formation of stable initiation complexes, Tat increased the rate and efficiency of transcription elongation. These results suggest that Tat, in addition to its demonstrated role in RNA elongation, facilitates transcription initiation in vitro. Consistent with these observations, Tat binds directly to the basal transcription factor TFIID. The transcriptional activity of HeLa extracts was depleted after chromatography on Tat affinity columns, which specifically retained TFIID. TFIID failed to bind to a mutant Tat affinity column which contained a single amino acid substitution. TATA binding protein (TBP), expressed in E. coli, binds to Tat, suggesting that Tat interacts with the basic subunit of TFIID. Peptide competition and TFIID binding analysis demonstrates that the conserved core region of the Tat protein mediates the Tat-TFIID interaction.